Yes, there are two basic kinds of Special Needs Trusts: self settled trusts (first party trusts) and third party trusts. A first party trust is funded with the disabled beneficiary’s own assets. For example, a person with a disability who receives a personal injury settlement might put the proceeds into a self-settled trust for his/her own use. A self-settled trust could also be funded with savings, inherited money, or a retroactive award of disability benefits. If a person places assets in a self-settled trust in order to obtain SSI, then the trust must meet certain requirements. It must be irrevocable. The trust must be created by a parent, grandparent, legal guardian, or a court; therefore, a person cannot create a self-settled trust on their own. A first party trust can only be set up for someone who is deemed disabled under the Social Security Administration definition. The most significant aspect of a self-settled trust is that there must be a Medicaid payback provision to the State of Maryland for any Medicaid benefits received while the beneficiary was alive.
Under a self-settled trust, the trustee can use trust assets to supplement (but not replace) any benefits or governmental assistance such person is or may become entitled to receive. There are also reporting requirements for a self-settled trust. The Attorney General’s office must approve all self-settled trusts. The Assistant Attorney General also requires the name, address, and social security number of the beneficiary and all trustees. The trustee must file annually an accounting of the administration of the trust’s assets to the Department of Mental Health and Hygiene (DHMH).
The State of Maryland has additional requirements for a self-settled trust to be in compliance with Maryland law. For instance, the trustee can purchase a primary residence for the beneficiary if the home is titled in the name of the trust but requires a court order for an amount exceeding $100,000.00. A family member who is acting as a trustee cannot be paid for their services. Also family members accompanying a beneficiary on outings or vacations cannot be reimbursed for their travel expenses. Another requirement is that funeral expenses cannot be paid from remaining trust assets; however, the trust can purchase a prepaid funeral contract.
It is important that assets are never titled in the name of a person with special needs in order to prevent the need for a self-settled trust. However, if assets are already in his or her name, it is important to create a self-settled trust to apply for much needed governmental benefits and preserve the assets he or she accumulated during his or her lifetime. By contrast, a third party trust is the optimal special needs trust for a disabled beneficiary.
A third party trust is one that contains assets that belonged to someone other than the disabled beneficiary before they were put in the trust. A classic example of a third party trust is one that a parent creates in order to leave an inheritance to a disabled child. A parent can create a third party trust under his or her will, through a separate Special Needs Trust document, or through a Revocable Living Trust. In most cases, a third party trust will not contain any funds until the parent dies.
Third party trusts provide that during the lifetime of the person with special needs, the trustee can use trust assets for their benefit without replacing the benefits received through governmental assistance. The trustee has the discretion to use the assets for such beneficiary’s needs. For example, the trustee can use assets to supplement basic health care services, to pay the expenses of his or her vacations, and to make improvements to real estate that would provide suitable housing for him or her. At the death of the person with special needs, all of the remaining trust assets can pass to anyone that the trustor of the trust decides at the time of the creation of the trust. The beneficiaries are often siblings or other family members of the person with special needs. At Sinclair Prosser Gasior, we can assist you with setting up either trust.
- How Often Should I Meet with an Estate Planning Attorney? - January 18, 2018
- Tax Law Changes for 2018 - December 29, 2017
- Dedicated Gardeners & Creative Spaces in Annapolis, MD - May 30, 2017
